Commercial Real Estate Encyclopedia

Business Planning >> I. Analyze and Segment the Market

Commercial Property Market Segments >>

Market Segmentation Analysis

What Is Market Segmentation?

Market Segmentation is the process of categorizing different groups in a market place with similar wants and needs. It describes the space and lays out the terrain upon which you will grow and innovate your business.

Why Is Market Segmentation Important?

Market Segmentation allows you to identify opportunities, measure potential, and position yourself in the market. It provides a "map" of the market that will allow you to guide your business and chart your course.

Segmenting your market will set in motion the process of understanding your market space and creating a focused business plan. It will allow you to measure the depth and breadth of your market, which in turn will tell you your market's potential and how to scale your business to serve your clients.

  • Market Segmentation allows you to identify opportunities, measure potential, and position yourself in the market.
In the commercial real estate industry there are a few tried and true classifications that are used to segment the market. Traditionally, all real estate has been local. Brokerage professionals tended to focus on a geographic territory. Professionals likely focused on a particular product type, such as office, industrial, or retail if the market was large enough.

As commercial real estate markets evolved, commercial real estate firms have become more sophisticated in offering a broader menu of more specialized services across national and multinational platforms.

For this reason, market segmentation analysis has correspondingly become a more important part of this business. Firms need to understand their markets on a more sophisticated level today to position themselves against the competition. Simultaneously, firms and professionals need increasingly more sophisticated market analysis expertise as part of their service offering to their clients.

As you perform your market segmentation analysis, it will be important to understand the market dynamics within the segment. Overall size such as total square footage in the market or number of properties are one example. Vacancy rates and net absorption rates are important indicators of supply and demand. The number of sales and lease transactions indicate the level of activity in the market. Combined with sales prices, lease rates, and commissions, the potential revenues and fees in the market segment can be estimated and compared against other market segments.

The process of segmenting your market is only limited by your creativity and your understanding of the dynamics of your market space. Today's availability of software, real estate data and database technologies further enhances your ability to perform more sophisticated market analysis and segmentation than ever before.
Commercial Property Market Segments >>
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